... and the winner is YV Reddy, so says Joe Nocera in NYT and Dean Baker! Nocera even describes Dr Reddy as "anti-Greenspan".
Even as Greenspan, endowed with oracular powers by the Wall Street and their trumpet bearers in the financial media, got swept away by the "irrational exuberance" accompanying the real estate and sub-prime mortgage bubble, Dr Reddy went the other way and tightened lending standards, curtailed securitization and derivative products, and increased risk weightings on commercial buildings and shopping mall construction, as a similar real estate bubble took shape in India. As early as December 2007, even before the crisis had erupted, the US Federal Deposit Insurance Corporation (FDIC) reported that 28% of the banks had an exposure to construction lending that exceeded their capital.
But the moot point, as Mark Thoma raises, is not whether Central Bank Governors or Chairmen should have rung the alarm bells and taken away the punch bowl as the party got going. It is the need to put in place rules that move automatically to cool rising asset prices, and thereby avoid having to depend on the discretion of individuals, with the attendant dangers of flawed judgement.
Update 1
Joe Stiglitz approves of YV Reddy's handling of the RBI during the real estate bubble.
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